Introduction

1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper AFSA- P-CE-2020-0004 to invite public feedback and comments on the proposed Framework on harmonization of titles used for the cryptocurrencies regulated in the Astana International Financial Centre (“AIFC”) and national legislation of Kazakhstan.

2. The proposed amendments to the AIFC Acts to harmonize the titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan are set out in Annexes 1-7 to this Paper.

3. This Consultation Paper may be of interest to the financial services providers providing or intending to provide custody services and/or services on operating a Private E-currency Trading Facility.

4. All comments to the proposed amendments to the AIFC Acts to harmonize the titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No. AFSA-P-CE-2020-0004” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.

5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.

6. The deadline for providing comments on the proposals is July 13, 2020. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments to the AIFC Acts due to harmonization of titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan.

7. Comments to be addressed to:

Consultation Paper No. AFSA-P-CE-2020-0004 Innovation Policy Division

Astana Financial Services Authority (AFSA)

55/17, Mangilik El avenue, block C-3.2, Astana, Kazakhstan or emailed to: r.abdirassilov@afsa.kz, Tel: +7 (7172) 647276

Background

1. To keep up with the fast-growing cryptocurrencies industry, in July 2018, the AFSA has adopted the AIFC Framework on regulation of Private E-currencies and extended private placement regimes for securities, including tokenized securities.

2. To further support the new cryptocurrencies regime, since 2019, the AFSA has been engaged in amending the national legislation of Kazakhstan, the National Bill on Digital Technologies, the Bill, to ensure establishment of favourable legal and tax regimes for exchange transactions with Private E-currencies and conducting ICOs in the AIFC.

3. As part of discussion of the Bill in the Parliament, its lower chamber approved the amendment on the digital assets proposed by the AFSA.

4. Particularly the Bill introduces the following amendment to the Civil Code of Kazakhstan: “(d)efinition and types of the digital assets as well as peculiarities of their circulation is defined by the national laws of Kazakhstan, the AIFC Acts”.

5. Following this, the AFSA has developed the draft amendments to the AIFC Acts with the aim to harmonise the titles used for the cryptocurrencies regulated in the AIFC and the above-mentioned Bill (replacement of words “Private E-currency” with the words “Digital Assets” throughout the text in AIFC Acts).

6. Essentially, the Framework shall:

(a) ensure alignment of used title for the cryptocurrency in the AIFC Framework on the regulation of Private E-currencies with the title envisaged to the cryptocurrency under the Bill (i.e. the “Digital Asset”); and

(b) allow to have two separate regulations on digital assets (including different definitions and types) in Kazakhstan: one – under AIFC acts, and another – under the national law of Kazakhstan on Informatization.

Annex 1

AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS (FSFR)

In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.

39. Exemption for Authorised Market Institutions

(3) An Authorised Private E-currency Digital Asset Trading Facility is exempt from the General Prohibition in respect of any Reguated Activity:

(a) which is carried on as a part of the Authorised Private E-currency Digital Asset Trading Facility's business as a Private E-currency Digital Asset trading facility; or

(b) which is carried on for the purposes of, or in connection with, the provision by the Authorised Private E-currency Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person.

55. Persons eligible for Membership

(2) An Authorised Person engaged in the activity of Operating a Private E-currency Digital Asset Business may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is either:

57. AFSA power to impose requirements on an Authorised Market Institution

Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:

(d) excluding the application of any requirements for engaging in the activity of Operating a Private E-currency Digital Asset Business imposed by the Rules; or

(e) imposing on an Authorised Person engaged in the activity of Operating a Private E-currency Digital Asset Business any additional requirements that the AFSA considers appropriate.

58. AFSA power to give directions to an Authorised Market Institution

Without limiting the application of section 95 (Exercise of supervisory powers by the AFSA), the AFSA may direct an Authorised Market Institution to

(c) suspend transactions in Securities, Units in a Listed Fund or Private E-currencies Digital Assets conducted on the market or through the facilities operated by the Authorised Market Institution; or

(d) prohibit trading in loans, Securities, Units in a Listed Fund or Private E-currencies Digital Assets conducted on the market or through the facilities operated by the Authorised Market Institution; or

…

Annex 2

AIFC GENERAL RULES (GEN)

In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.

1.2. Authorised Market Institutions Guidance: Definition of Market Activity

Market Activity is defined in the section 18 of the Framework Regulations as:

(c) Operating a Private E-currency Digital Asset Trading Facility;

…

1.2.6. Effective supervision

In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:

…

(b) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Private E-currency Digital Asset Trading Facility, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;

…

1.2.7. Compliance arrangements

In assessing whether an applicant has adequate compliance arrangements for the purposes of section 37(1)(d) of the Framework Regulations, the AFSA will consider whether it has:

(e) if the applicant seeks a licence to carry on the Market Activity of Operating a Private E-currency Digital Asset Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules and the Authorised Market Institution Rules.

1.4. FinTech Lab Activities

1.4.1. Activities performed in FinTech Lab

(a) the Regulated and/or Market Activities that are specified in Schedules 1 and 4 of GEN can be carried on by a Person subject to the terms and Licence issued under FINTECH.

(b) a Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on activities not specified in (a).

(c) For the purposes of (a) (b), the AFSA may grant a Licence for a Person to carry on activities as specified in the Licence.

SCHEDULE 1: REGULATED ACTIVITIES

5. Providing Custody

Providing Custody means one or more of the following activities:

…

(c) safeguarding and administering Private E-currencies Digital Assets belonging to another Person.

SCHEDULE 4: MARKET ACTIVITIES

3. Operating a Private E-currencies Digital Asset Trading Facility

Operating a Private E-currencies Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:

(a) to buy, sell or exchange Private E-currencies Digital Assets for a Fiat currency; and/or

(b) to exchange one Private E-currencies Digital Asset for another Private E-currencies Digital Asset, in its Facility, in accordance with its non-discretionary rules.